ANALYSIS: A Morneau Shepell survey released Wednesday reveals that Canadians 50 and older are unrealistic when it comes to managing their financial issues in retirement and are overly optimistic about their health.
The report suggests Canadians expect to withdraw 15 per cent of total savings each year – four times the recommended amount. In addition, 61 per cent of employees over the age of 50 are currently suffering from one or more chronic illnesses. Despite this, 97 per cent describe their current health as being good, very good and even excellent.
We often talk about getting your finances in order for retirement, yet health is one of the most important factors to consider when planning for retirement. Fifty-nine per cent of respondents indicated they will not have access to an employer-sponsored health benefits plan.
Of the employees surveyed, 24 per cent indicated that when they choose to retire, they will not be financially prepared. Twenty-three per cent plan to rely on the government pensions and 30 per cent will not be financially prepared to deal with a health issue.
Many don’t even have the proper documents in place and are concerned about managing their money, property and finances if they become ill and are unable or unwilling to do so. Discussions around health care directives, accommodation, should you be unable to live alone and dealing with financial affairs, are complex and highly emotional topics that are better dealt with outside the heat of the moment. This type of discussion is necessary and should happen years before implementation.
The will is arguably the most important document in your plan, outlines how you would like your assets to be distributed upon death. It’s a foundation document that many still shy away from. Should you die without a will, provincial law determines how your assets will be distributed. Your will should be kept in your safety deposit box, and a copy kept on file with your lawyer.
Power of attorney is a legal document that appoints a person or trust company to manage the financial affairs of an individual. Today, powers of attorney are proving to be just as important as wills, because medical science is extending people’s life expectancy, often at compromised levels of physical and mental capacity.
There are two types of powers of attorney. The first is a power of attorney for property, which covers all financial matters, such as investments and bill payments, with the exception of making or changing a will. The other is a power of attorney for personal care, which assigns responsibility for all matters related to your quality of life and health care if you become incapable of making those decisions.
I’ll focus on the pros and cons of financial powers of attorney:
- Makes it clear who will be responsible for your affairs if you can’t manage them on your own, even temporarily.
- It’s flexible. The set up can be as general or as specific as you need it to be.
- An enduring power of attorney allows your attorney to continue looking after your affairs if you lose your mental capacity.
- The set up may leave you vulnerable to financial abuse and could lead to the mismanagement of your money and property.
- Your attorney must manage your money as directed in the document; however, be careful not to be too directive or not specific enough.
- Keep things up to date to reflect your needs and to ensure there aren’t competing powers of attorney if you have signed more than one document.
It is a savvy person who can look down the road and plan for the “what if” scenarios, appreciating there are mechanisms in place to protect you and hold your attorney accountable if they mismanage your finances – or do not manage your money in the way you directed them to.
And remember, as long as you are mentally capable, you can continue to make your decisions about your finances. It is your money.